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The Hummer Gets Downsized
The Wall Street Journal Online
By Lee Hawkins Jr.
As Sales of Giant SUV Drop, GM Plans a Smaller Version That Is More Fuel Efficient
General Motors Corp.'s Hummer division, best known for the hulking Hummer H2, will roll out a smaller, more fuel-efficient version of the sports-utility vehicle next year in a move to reinvigorate the brand, which has slumped amid rising gas prices.
Hummer's new model, called the H3, gets roughly 17 to 20 miles per gallon, compared with 10 to 12.5 for the H2. The H3 will hit the market next summer.
The new model will also be significantly less expensive: Equipped with a five-cylinder engine, the H3 is expected to be priced in the $30,000 range, compared with about $50,000 for the bigger H2 and $100,000 for the mammoth H1. The H3 is six inches shorter in height and 6.5 inches narrower than the H2, which makes it easier to maneuver and to park.
Hummer is hoping the H3's superior fuel efficiency will help it win over consumers who are sensitive to the economic impact of rising gas prices on their wallets. Sales of the H2 began to decline earlier this year, as the SUV became a target for environmentalists and others who saw the fuel-thirsty truck as a symbol of unnecessary excess. Since the beginning of 2004, sales of the H1 and H2 have declined sharply compared with last year, down 65% and 27%, respectively. On Oct. 25, Hummer plans to end the second shift of H2 production at the AM General Corp. plant in South Bend, Ind.
The sharp drop in sales prompted Hummer to offer incentives on the Hummer to dealers this summer "to close out the 2004 models."
By expanding its model range, Hummer wants to follow in the footsteps of luxury brands such as Cadillac, BMW and Mercedes, which have pushed up their sales volumes in recent years by offering smaller, more-affordable versions of their brands.
Susan Docherty, the brand's new general manager, said the H3 should help Hummer grab younger, more-active consumers who may earn less than the typical Hummer buyer, as well as female consumers who have liked the Hummer's styling but not its size. "Customers are looking for something smaller and more efficient and something that is a little more approachable versus our H2," Ms. Docherty said.
Despite concerns over rising gas prices, sales of midsize SUVs such as the Acura MDX and BMW X5 have remained strong. So Hummer is counting on the H3 to help it grab a chunk of that SUV segment. The brand's H2 truck is part of the large luxury SUV market, which posts only about 160,000 unit sales a year, compared with the 1.7 million units a year typically sold in the midsize segment.
The H3's cousins are typically purchased by customers with annual incomes that exceed $150,000 a year. Hummer executives expect the H3 to attract single buyers with average annual incomes of about $75,000 a year and dual-earner households with average incomes of about $100,000 a year.
When launched in 2002, the H2 heightened the profile of the Hummer brand, which reached iconic status with its massive H1 off-road vehicle. But the H1 is more of an image booster, reaping only about 500 sales a year. The H2 has been more of a high-volume seller, although sales have declined this year. Upon the H2's initial launch, Hummer sold 30,000 to 40,000 a year, but the brand expects the H2 will close out the year with about 27,000 in unit sales. In order to push higher volumes, Hummer recognized that it needed to develop a vehicle that was more compatible with the needs of consumers looking to drive an SUV in urban settings in addition to the off-road environment. A smaller size is also viewed as important in expanding the market of potential buyers. The H3 is about 16 inches shorter in length than the full-size H2 SUV and is comparable in size to a Chevy Trailblazer or the new Jeep Grand Cherokee.
The Hummer H3T, a midsize truck that was shown as a concept vehicle by GM at the 2004 Greater Los Angeles Auto Show, marked an early indication that GM was looking to broaden its offerings of vehicles in the Hummer family. This new H3, which will be unveiled Wednesday at the California International Auto Show in Anaheim, is based on the original H3T concept.
Though priced lower, the H3 will still offer six different interiors, complete with options and features such as heated seats and GM's Onstar communications service. Hummer also wants to supplement its H3 sales with robust sales of accessories. Hummer estimates that the average Hummer purchaser spends about $5,000 extra to accessorize the vehicles. Ms. Docherty said the brand hopes to see H3 purchasers spend an average of $2,500 to $3,000 on accessories.
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